The death of the high street

Britain’s shops are shutting at a record rate, and many of those that survive are ‘zombies’, only hanging on due to low interest rates. Can they be saved?

Britain's shops are shutting at a record rate, and many of those that survive are zombies', only hanging on due to low interest rates. Can they be saved? Simon Wilson investigates.

Are Britain's high streets dying?

They're definitely looking peaky battered by a triple whammy of, firstly, online retailers, whose market share in Britain is higher than other comparable nations at 9%, and projected to grow to 14% by 2016; secondly, the resurgence of mega shopping malls and efforts by the likes of Tesco to turn their out-of-town megastores into diverse "destination" outlets; and finally five years of low-to-negative economic growth.Some 40,000 shop premises 14% of the total are empty.

Famous names disappear every month, and high-street staples such as independent clothing stores, shoe shops and newsagents are shutting at a record rate: nearly 200 businesses closed in the first half of 2013, almost equal to the whole of 2012, according to the British Independent Retailers Association.

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Are there any bright spots?

Services. The number of independent outlets in Britain's town centres crept up over the past year, as cafes, beauty salons, nail bars, barber shops and mobile-phone-unlocking joints gain more of a toe-hold in town centres. Bookies and pawnbrokers are also flourishing. "This is a fundamental structural change," reckons Matthew Hopkinson of the Local Data Company, which conducted the research.

"No longer will shopping be the primary reason to visit a town centre. We are seeing the death of traditional shops and the rise of services that offer the personal touch the things you can't buy at the supermarket or online." This echoes the findings and recommendations of Bill Grimsey, the former Wickes and Iceland boss who, dissatisfied with last year's government-backed effort by Mary Portas, this week published his own report on the high street's future.

What does Grimsey have to say?

The situation is even more critical than it appears. According to research conducted for his review by business analysts Company Watch, which examined the accounts of 44,000 British retailers, the number of formal insolvencies has remained stable at about 45 retailers a week since the start of the recession. But the bigger story is the precarious financial health of those that have survived.

In 2008, there were 8,598 retail businesses with liabilities at least £5,000 more than their assets "zombie companies" with debts of £1.1bn who can only afford to pay the interest on their debts thanks to historic low interest rates, and nothing on the principal. Now, in the summer of 2013, there are more than 20,000 such firms, with £2.3bn of debts getting on for half of Britain's 44,000 retail businesses (see below).

What can be done?

The guiding principle of Grimsey's 31-point plan is that business and policy-makers have to accept there is too much retail space in Britain, and traditional shops can no longer be the only anchor for high streets and town centres. Instead, they must be repopulated as "community hubs", encompassing more housing, education, public "wired spaces", arts, entertainment, office space, health services and leisure services as well as shops. To do this, he urges more political will and attention: a cabinet-level high-streets minister, and a professional Town Centre Commission for every town, working towards a 20-year plan.

What else does he recommend?

To fund the programme, he suggests a one-off levy on UK retail and leisure sales that would raise £550m for a high-street fighting fund. He wants a reintroduction of the 2015 rates revaluation to realign property values and freeze business rates from 2014 (with any future rises based on consumer prices index inflation). He also wants any business that occupies an empty retail property in a town centre that has been vacant for 12 months to get 50% rate relief for two years, and to compel landlords of empty shops to apply for a change of use in line with the town plan.

How does this differ from Mary Portas's ideas?

There's been a bit of media sparring between the rival high-street champions this week, with Grimsey unfairly dismissing Portas as a lightweight promoting a TV series. In truth, there's much common ground. Both want a new body in each town to champion the revival of town centres, although Grimsey's Commissions sound like more professional outfits than Portas's Town Teams. Both advocate free parking schemes in town centres and want the planning system shaken up and business rates reformed. But Grimsey's analysis proposes a more radical set of proposals.

Whereas the 12 Portas Pilot Towns divvied up £1.2m to spruce up the high streets (and failed to spend the full amount), Grimsey is proposing a shift in thinking and a 20-year plan. It's a manifesto the government should take seriously.

Will the 'zombies' survive?

Many won't. According to Company Watch, if we look at the statistics on the financial health of similarly distressed companies over the past 15 years, it suggests that a quarter of those retailers will fail within the next three years about an eighth of all British retailers. Moreover, the situation is most desperate for the smaller firms, the independents who make up the backbone of many high streets: the research shows that two-thirds of them are in the highly vulnerable group of the "living dead".

As Bill Grimsey points out, "these problems are not just confined to retailers; they ripple out across a supply chain into the agriculture, manufacturing and wholesale sectors, which pegs the fortunes of another 50,000 British companies to the success of the retail industry".